The Choice Of Trading Venue And Relative Price Impact Of Institutional Trading: Adrs Versus The Underlying Securities In Their Local Markets

Sugato Chakravarty (), Chiraphol Chiyachantana () and Christine Jiang
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Chiraphol Chiyachantana: Singapore Management University
Christine Jiang: University of Memphis

No 1011, Working Papers from Purdue University, Department of Consumer Sciences

Abstract: We address two important themes associated with institutions’ trading in foreignmarkets: (1) the choice of trading venues (between a company’s listing in its home market and that in theUnited States as anAmerican Depositary Receipt [ADR]) and (2) the comparison of trading costs across the two venues.We identify institutional trading in both venues using proprietary institutional trading data. Overall, our research underscores the intuition that the choice of institutional trading in a stock’s local market or as an ADR is a complex process that embodies variables that measure the relative adverse selection and liquidity at order, stock, and country levels. Institutions route a higher percentage of trades to more liquid markets, and these trades are associated with higher cumulative abnormal returns. We also find that institutional trading costs are generally lower for trading cross-listed stocks on home exchanges even after controlling for selection bias.

Keywords: trading venues; trading costs (search for similar items in EconPapers)
JEL-codes: G14 G18 G19 G20 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-12
New Economics Papers: this item is included in nep-cdm
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Citations: View citations in EconPapers (2)

Published in The Journal of Financial Research , v. XXXIV(4)

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Related works:
Working Paper: The Choice of Trading Venue and Relative Price Impact of Institutional Trading: ADRs versus the Underlying Securities in their Local Markets (2012)
Journal Article: THE CHOICE OF TRADING VENUE AND RELATIVE PRICE IMPACT OF INSTITUTIONAL TRADING: ADRs VERSUS THE UNDERLYING SECURITIES IN THEIR LOCAL MARKETS (2011)
Working Paper: The Choice of Trading Venue and Relative Price Impact of Institutional Trading: ADRs versus the Underlying Securities in their Local Markets (2004)
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